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Strategies & Market Trends : MP - Market Pulse -- Ignore unavailable to you. Want to Upgrade?

To: Stephen M. DeMoss who wrote (1239)	8/16/2001 7:46:41 AM
From: s berg	Read Replies (2) \| Respond to of 1328

Max pain for who? If J6P owns the calls and institutions the puts then current scenario makes sense. Weakness of max pain is that options data is not broken down into professional versus small traders similar to to the futures data.

To: Stephen M. DeMoss who wrote (1239)	8/19/2001 1:05:29 AM
From: mishedlo	Read Replies (1) \| Respond to of 1328

Steve - Max pain nearly always works - but it sure does not always look like it. Delta hedging is one answer. Once a stock breaks strongly from max pain, the MMs go short or long (whatever the direction of the break) to prevent huge losses on that side of the coin. INTC was nicely pinned at 30, right at max pain but bad news sent it lower. To reduce losses the put holdes shorted as much as they could as quick as they could overpoereing all the buyers. When max pain misses badly (as it did this expirty) it is because a train wreck or a moonshot got out of control forcing delta hedging to further propel the collapse. Actually I did a post on this a few days ago. Max pain on the QQQ was about 41 and I said if we fell to much further we would likely tank. Unfortunately I closed my puts cause I thought they could prop it up. Max pain does not reliably work EVER on small float issues, except out ofv sheer randomness. I have not looked up THGI but since I have never heard of it, I doubt there are too many options on it. Comapre the open interest on INTC MSFT CSCO QQQ and those are the ones to watch. Last month INTC closed within pennies of max pain. Like anything else it works until it does not (or does not seem to). Sometimes the powers that be hedge a week out (like thy did in FEB, then just let it drop), this time there was actually so much more call interest than put interest (that the calls got crushed just like the puts did in April). Now we can really get a rally going if J6P starts buying lots of puts. Like anything else Max pain is a tool, and I would rather have it be on my side than not, but it cann fool you if you do not understand what is happening behind the scenes. The other problem with max pain is all we see is the open interest not who is holding the options. For example, we do not know if the calls were sold to the option pits (covered calls) or if PUTs were sold (sales of naked puts). Normally it all works out. BUT. Assume for a moment that J6P sold puts at 50 and bought calls at 60. Now the MMs want to drive the price as low as possible, but when looking at max pain it might appear to be 55 or something. Who the option hold is very much matters and that unfortunately is impossible to know. These things lead to the anomolies that we saw this week. M